The Vale of Rheidol Light Railway was authorised by Act of Parliament on 6th August 1897. At the time of building, it was of the most up to date standard of narrow gauge construction, and passed through terrain where it would have been almost impossible to build a standard gauge line without prohibitive costs. The line was authorised as two distinct sections, namely the main line from Aberystwyth to Devil's Bridge, and a harbour branch.

A start on construction was delayed due to difficulty in raising capital locally, but finally got under way under the direction of Sir James Szlumper in 1901. Some materials and a locomotive ( which was renamed Rheidol) from the defunct Plynlimon & Hafan Tramway were used during the construction. The railway finally opened to the general public on 22nd December 1902.

At the time, it was thought that the building of the railway would bring prosperity back to some of the local lead mines in the area, and indeed some were reopened, the ore extracted taken by the railway to Aberystwyth for transhipment by rail or sea. A good trade was also done in timber, which was used mainly for pit props in the South Wales coal mines.

The original stations were at Aberystwyth, Llanbadarn, Capel Bangor, Nantyronen and Devil's Bridge.

At the height of the lines prosperity, in 1912, consideration was given to converting the line to electric traction, using hydro-electric power from the River Rheidol. The same year however, control of the line passed to the Cambrian Railways and plans were shelved. The Great War of 1914-18 saw closure of the Rheidol United Lead Mine and a reduction in passenger services, and following the war the decline in other mine traffic continued, balanced somewhat by a growing tourist trade. In 1923 Cambrian Railways were themselves absorbed by the Great Western Railway and goods services were withdrawn completely, and the harbour branch closed. The winter passenger service was withdrawn in 1930, and the line closed completely from the end of the 1939 summer service for the duration of the Second World War.

Ownership of the line passed to British Railways in 1948, and it survived through threats of closure to become the last steam railway owned by British Rail until privatised in 1989. The railway is now owned by a charitable trust, who set about renovating and improving the locomotives, carriages and track and opening up some of the views not seen for decades.

The locomotives and carriages currently in use were built for the line by the Great Western Railway between 1923 and 1938.